Thursday, 4 October 2012

Rail Franchising Put on Hold - Latest

Following the announcement yesterday that the competition to run the West Coast rail franchise would have to be re-run, taxpayers will pick up an immediate £40m bill for compensating the
four shortlisted companies that bid for the west coast franchise. Beyond
the compensation bill for those companies and others involved in
franchise auctions that will now be paused, the department may also find
itself a hostage to the operators running the rest of Britain's
railways, as the timetable for renewing contracts slips. An industry
source said: "I think they have no option but to extend franchises that
are next for renewal. It will cost them a fortune."
Virgin Trains,
which looked set for imminent extinction, is now confident it will be
allowed to run the west coast service in the interim, andBranson said he hoped a new, transparent process would mean his company could also soon target the east coast line again.
It
has emerged that the previous transport secretary, Justine Greening,
had ordered an investigation in late August when she was first informed
by officials that a "small procedural error" may have occurred. She is
said to be "fully supportive" of McLoughlin's targeting of officials,
who she believes suppressed information when giving categorical
assurances that Virgin had no basis for a legal appeal.
But the
news raises the question of whether ministers were reshuffled by David
Cameron last month in part to save them from resigning. Greening's then
deputy, the new Northern Ireland secretary Theresa Villiers, was a major
proponent of controversial longer franchises and took the decision to
give the west coast franchise to FirstGroup.
Shadow transport
secretary Maria Eagle said: "The prime minister should come clean on
when he knew, and on any connection with the decision to conduct a
wholesale clearout of Tory transport ministers before this fiasco became
public."
The DfT discovered the flaws as it was preparing to
contest the judicial review Virgin sought in the high court after
losing the franchise on 15 August. McLoughlin said: "Some of the points
Richard Branson made were found to be correct, but there were things
that were more wide-ranging … That's why I took the decision last night
to go back to the drawing board."
A report into what went wrong
with the west coast bidding process is due at the end of the month.
Virgin's case was that the forecasts and figures from the DfT did not
add up, leading to an excessive level of risk in FirstGroup's winning
bid.
Virgin and McLoughlin held talks to discuss options on
Wednesday evening. The transport secretary was set to invite the
state-owned Directly Operated Railways (DOR) to run the service when the
current franchise expires on 9 December, had Virgin's legal proceedings
delayed the new contract with FirstGroup. That development hardened
some Virgin insiders' view that a "hard core" at the department "just
don't like us".
Branson had offered to run the service "for free"
while the row was resolved but that offer is now likely to be moderated.
Staff at Virgin believe the DOR option was intended "to rub our noses
in it".
Branson said: "I'm pleased we didn't have to go to court
and that the minister has been so fulsome in his apologies, and pleased
that he's going to do a complete overhaul."

The three unnamed civil servants were suspended by the department's
permanent secretary, Philip Rutnam. "The errors exposed by our
investigation are deeply concerning. They show a lack of good process
and a lack of proper quality assurance," he said.
McLoughlin has
ordered two independent reviews: in addition to the one due at end of
the month, which will be overseen by Centrica's chief executive, Sam
Laidlaw, there will be a second, under Eurostar chairman Richard Brown,
which will examine the wider rail franchising programme to see what
changes may be needed to get the other bidding procedures back on track.
The three outstanding franchise auctions now on hold are Great Western,
Essex Thameside and Thameslink.

A furious Tim O'Toole, the FirstGroup chief executive, said: "We
don't have a clear understanding of what went wrong. We've been promised
an explanation. The only thing they've made clear is that there was
nothing wrong with our bid." Shares in FirstGroup fell almost 20% on the
news.
FirstGroup's bid, with payments heavily loaded towards the
back end of the 13-year franchise, offered premiums far in excess of the
£190m bond it was offering as security. The other two shortlisted bidders, Abellio
and Keolis, backed by the Dutch and French state railways, bid far less
even than Virgin.
Whoever takes over after 9 December, McLoughlin
said passengers would continue to be served by the same trains and
front-line staff.http://www.guardian.co.uk/uk/2012/oct/03/virgin-rail-west-coast

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